Crude oil markets traded within its new found range although with concerns about global growth resurfacing prices ended the week lower. Oil balances continue to remain constructive even at current price levels with the latest demand data suggesting that the bulk of the weakness in the OECD is primarily concentrated in the US.

The extreme weakness in European oil demand has eased as strong weather driven base effects fade away while OECD Pacific remains buoyant. In the non OECD the final set of Chinese data showed oil demand soaring to a record high in February supported by an all time high level of gasoline and diesel demand and not purely driven by stock piling. The key driver of the tight balances though remains the weakness in non OPEC supply where over 1 mb/d of unplanned outages remains in place. As a result even with OPEC volumes at a three year high the low inventories have hardly managed to refill.

In the light of these current market concerns of future supplies associated with limited available buffers and rising geopolitical tensions this week saw Saudi Arabia s oil minister holding a press conference in an attempt to calm markets. In our view his statements saw no change to current Saudi policy. Further we believe that even if Saudi Arabian production was to rise in the coming months it would be absorbed by seasonal increases in demand with very little trickling to the global market.

Overall given the state of spare capacity the market is now at a point where the price depressing effect of more immediate output is balanced by the priceinflating effect of reducing spare capacity.